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Friday, June 9, 2017

Global Shale Law Compendium: Shale Governance in South Africa

Written
by Chloe Marie – Research Fellow

The Global Shale Law Compendium
series addresses legal developments and other issues related to the governance
of shale oil and gas activities in various countries and regions of the world.
In this article, we will highlight governance actions taken by South Africa to
develop policies specific to shale gas development.

South
Africa’s economy relies heavily on coal, accounting for about 72% of the country’s
total primary energy consumption. Additionally, the country holds 95% of
Africa’s total coal reserves, according to a 2015 analysis
by the U.S. Environmental Information Administration (EIA). South Africa,
however, has very limited proven conventional oil and natural gas reserves but,
surprisingly, may have large shale gas reserves. Indeed, EIA estimated shale
gas reserves in South Africa to be approximately 390 Tcf in a report dated June 2013,
making the country the eighth-largest holder of technically recoverable shale
gas resources in the world. At the present time, South Africa is considered to
be the thirteenth largest global emitter of carbon dioxide due to its reliance
on coal. The development of shale gas resources, as an alternative to coal, may
help the country to meet its emissions reduction targets. Shale gas reserves in
South Africa are located in the southern portion of the Karoo Basin, which
stretches across central and southern South Africa and extends over 2/3 of the
country.

Several
companies, including Royal Dutch Shell, Bundu Gas & Oil Exploration Ltd.
and Falcon Oil & Gas Ltd. quickly expressed an interest in exploring for
shale gas in South Africa beginning in 2010. Bundu Gas & Oil Exploration
Ltd and Falcon Oil & Gas Ltd submitted applications for licenses to explore
in the south-central and central parts of the Karoo Basin, respectively in May
and August 2010. Shell also submitted
three separate Exploration Permit applications in December 2010 for areas
located in the Western Cape, Eastern Cape and Northern Cape provinces.

Subsequently,
the South African population expressed deep concerns regarding the potential
impacts of hydraulic fracturing on the environmentally sensitive Karoo Basin prompting
the government to establish a moratorium on exploration licenses for shale gas
in February 2011. Additionally, the South African Department of Mineral
Resources commissioned a Working Group to investigate the impacts of shale gas
development using hydraulic fracturing in the Karoo Basin. On September 28,
2012, the Working Group published the findings of its
investigation and contended that hydraulic fracturing should be approved “under
augmented regulation and close control.” As a result, the government lifted the
moratorium. As part of their recommendations, the Working Group suggested that
the Department of Mineral Resources should establish the “appropriate
regulations, controls and co-ordination systems” in a period of time ranging
from 6 to 12 months.

In
South Africa, petroleum and mining activities are regulated primarily under the
Mineral and Petroleum Resources Development Act (MPRDA), which governs upstream
hydrocarbon exploration and production, and the National Environmental
Management Act (NEMA), which addresses environmental authorizations necessary
to conduct hydrocarbon exploration and production activities. Under the MPRDA,
the Petroleum Agency of South Africa (PASA), on behalf of the Minister of
Mineral Resources, is responsible for granting Technical Cooperation Permits
(TCPs) and Reconnaissance Permits (RPs) – allowing operators to conduct
preliminary surveys of the location prior to any prospecting or exploration
operations – as well as Exploration or Production Rights. Holders of TCPs have
exclusivity in obtaining an Exploration Right for the same technical
cooperation area; the same applies to holders of an Exploration Right willing
to carry out production activities. Permit applicants are required to obtain environmental
authorization for petroleum and mining exploration and production rights,
including shale gas, under the NEMA. The Minister of Mineral Resources has the
power to grant such authorization.

In
October 2013, the Minister of Mineral Resources published draft Technical
Regulations for Petroleum Exploration and Production in an attempt to adapt and
supplement the existing hydrocarbon legal framework in regard to shale gas
development. The draft provides for comprehensive environmental and technical
guidelines to aid operators in the conduct of hydraulic fracturing activities.
As the tensions surrounding shale gas exploration activities mounted, the South
African government made the decision to prevent the granting of additional
exploration rights until the proposed Technical Regulations were adopted.
Applications received and accepted prior to February 1, 2011, were excluded
from the moratorium. The South African Department of Mineral Resources adopted
and published the Technical Regulations
on June 3, 2015.

Interestingly,
although Technical Regulations are now in place, the government has not yet granted
any exploration permits and is still reviewing pending applications for
exploration rights. Recently, however, the government declared in May 2017 that
it “may award its first shale gas exploration licenses by the end of September,
after environmental objections delayed the process,” according to a media report.

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The Center for Agricultural and Shale Law (CASL) provides information and educational programs on agricultural and shale law and policy for producers and agribusinesses, attorneys, government officials, and the general public. The Center does not provide legal advice, nor is its work intended to be a substitute for such advice and counsel.